Council of Mortgage Lenders

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

Delivered on:

7 November 2012 (Transcript of the speech, exactly as it was delivered)

As a chartered surveyor, I feel I have some understanding of the housing and the property markets. But I come to this role recognising that, frankly, I still have much to learn, especially about the mortgage market.

So let me start by saying that I want to listen. The considerable expertise gathered here is something I will not ignore. Indeed, it’s experience that I value. There will be times when we won’t always agree, but if we work together, we can make a real difference in quite challenging times.

A dysfunctional market

As a government we inherited a dysfunctional housing market, whether it’s freehold or leasehold. A market in which (for at least fifteen years) we have been building roughly half the homes we need. Indeed, under the last government we saw that the rate of housebuilding dropped to the lowest level in peacetime, since the 1920s.

The social consequences are considerable. Housing waiting lists have soared in many cities; hundreds of thousands of people been unable to buy or move, and that has seen private sector rents climb.

We also see some 1.6 million young people in their 20s and 30s still living with mum and dad, because they cannot afford their own place. That cannot be right.

Government’s role

That is why I make no apologies for saying that we need more homes, and we need better homes, for more families. More homes for tenants, more homes for owner occupiers.

It’s why last November, we set out a comprehensive ‘Housing strategy’ designed to tackle our dysfunctional housing markets in the short and long term, rented or owned.

First of all, £19.5 billion is being invested in much-needed affordable housing. We’re doing this slightly differently by working with the private sector. Government has invested £4.5 billion, and a further £15 billion has come through private funding. It means we’re on track to deliver 170,000 new affordable homes, by the end of this Parliament (with some 55,000 supplied last year).

Secondly, we are taking radical steps to inject substantial investment into building homes for the private rented sector.

The relationship between social homes, the rental sector and private ownership are often overlooked, and we’re trying to bring them together.

Following the excellent report from Sir Adrian Montague and his team, we have committed to provide a £10 billion debt guarantee and a £200 million equity finance fund, to help lever in substantial new providers, including some established players from overseas.

To put it simply, we want it to be a bigger, better market, capable of providing tenants with more quality, and more choice.

Thirdly, we are reforming the planning system and the maze of non-planning building consents. Don’t get me onto the subject of the greater crested newt. We’ve introduced the new, simplified ‘National planning policy framework’ and we are now looking to strip away much of the bureaucracy around those other consent systems, to enable and speed up sustainable development.

Fourthly, we are determined to enable the re-use of previously developed land and of homes lying empty. So we’ve identified surplus government land, capable of providing 100,000 homes, and we’ve already sold land capable for some 33,000 homes.

There’s more to do in that area, and alongside our multi-million programme to bring empty-homes back into use, the work is starting to provide real dividends.

So, I think from this can see we are actively pursuing a range of supply side policies.

Helping home buyers

But as this audience will know more than many, tackling supply alone, is not enough. We fully recognise that there are serious problems with demand.

By way of context, tackling the fiscal deficit we inherited has, of course, been fundamental to our economic strategy.

By cutting the deficit by a quarter over the last two years, it’s allowed us to retain the confidence of the global market to lend to the UK, and to do so at lower rates, than elsewhere.

And that means that interest rates here in the UK have remained lower for longer. But we recognise that consumer confidence remains weak.

Confidence is, frustratingly, both crucial to the housing and mortgage markets and one of the most difficult things for government to be able to affect.

The prolonged credit crunch and the continuing uncertainty in the Eurozone has cast a long, dark cloud over all of us, both businesses wanting to invest and families looking to buy.

But practical action can and is being taken.

The Funding for Lending Scheme is now providing a steady flow of credit into the marketplace.

And I gather from some of the major lenders that this is already helping them launch new products, some at a lower price. We’ve seen early signs of increased mortgage approval rates and I hope that continues.

And we have now extended the FirstBuy scheme, to help first time buyers, buy new build homes. In its first year we have seen over 8,500 reservations, with 3,000 sales already completed. It’s why we’ve decided to treble the scheme, to assist up to some 27,000 people. And, of course, by helping first time buyers, we are able to unlock many more housing chains and help many more people.

Third, we have backed the NewBuy scheme, run by yourselves and the Home Builders Federation. Acting as a mortgage indemnity scheme, NewBuy started in March and we have already seen over 2,000 reservations. Indeed, the Home Builders Federation estimate the NewBuy scheme will assist some 25,000 families, and as a Government we have made provision for many more.

Now, all the signs are that, after a cautious start, NewBuy is progressing well, after a cautious start. Savills’ recent research shows that NewBuy mirrors takeup of FirstBuy in its first few months.

But what more can be done? What can government and industry, lenders included, do next?

Let me start by saying that I value the work of the CML and the work of the lenders represented here today, particularly in regard to repossessions. I want to pay tribute to the work of many lenders and advisers here, who have worked hard to help borrowers who are struggling to pay their mortgage by offering forbearance options.

It has been one of the most encouraging aspects of the recent recession has been that, so far, the level of repossessions has been far lower than in previous downturns.

But, we’re not complacent. That’s why I’ve extended the Mortgage Rescue Scheme by a further 12 months to March 2014, so that we can help more homeowners (who may be at risk of repossession) to stay in their homes.

I also recognise that the FSA and lending industry have worked constructively together to ensure there are now clear rules arising from the Mortgage Market Review. This is vital if we are to have a stable and healthy housing market.

But I think there’s still more that the government, and this sector, can do.

In these challenging times we all need to think differently. We need to be challenged in our assumptions.

For example, how as an industry can you bust the myth, that mortgages just aren’t available? You’ve told us that 80% of mortgage applications are accepted, so there’s clearly a gap between the actual mortgage market and what people think is the case. What can you do, together, to change these perceptions?

Secondly, I see many consumer surveys (such as the well-known analysis on Generation Rent by Halifax) suggest that your potential customers are confused, by what’s on offer. How could this sector improve transparency, to make it easier for potential customers to buy your products?

Thirdly, Right to Buy is back on the agenda, and should be considered afresh. It’s true, the scheme dwindled under the last government, but we have now completely revamped it.

The potential discounts for tenants have radically increased, almost quadrupling in some areas to £75,000. And we have a concerted marketing campaign, which, over the coming months will continue to target hundreds of thousands of households to explain the changes, and how they can buy.

My question here is, are you aware of this change? There’s a real opportunity here, right across the country. Are you ready to be part of it?

But perhaps even more importantly, there’s a new market opportunity I want you to bring to your attention.

The self build market in this country has historically been tiny to be honest, both numerically, and as a proportion of the overall market. Industry figures suggest that it’s only 1 in 10 new homes that are self-built.

Yet, in many other markets the picture is very different. In the USA 45% of all homes are self or custom built, in France and Germany it’s over 60%.

Demand in the UK is now changing. The number of people now looking to build their own home, is at a record level.

Indeed, in a recent survey by the Building Societies Association 53% said they wanted to build their own home, and interestingly two thirds of the people who want to build their own home want to within the next two years.

So this isn’t a pie in the sky dream, it’s a real ambition for many people.

One of the principle restraints to self build has always been finding a plot of land.

Communities have responded to this challenge by using community land trusts. Groups of people across the country are getting together to build on local plots – whether that’s in, Shropshire, Devon, Cumbria or right here in London.

And our new Community Right to Build scheme, which has just begun, will also make it even easier for larger custom-built projects. And planning authorities are now identifying land where self and custom-built home will be encouraged.

As a government, we are determined to make self and custom build housing a realistic option for many more people. Hence the change to the planning rules, and the creation of new vehicles to enable custom-built homes to progress.

But to realise our ambition (to double the size of the sector over the next decade) we’re going to need fresh thinking from builders and designers, planners and yourselves.

I know some members have already responded - with self build mortgage products up, from 14 to 24 in the last year. Indeed some independent predictions are anticipating lending will rise by 140% in the near future.

Now I’m not pretending self build is the entire answer, but it’s a element I want to encourage you to incorporate.

But I’d like to encourage you to go even further, and fully consider the opportunities of this market for your business. Whether that’s by tailoring your lending products for builders and contractors (who are building custom homes) or extending products like build-out insurance, which can help reduce lending risks for your sector.

Conclusion

So, ladies and gentlemen, I strongly endorse the principle of this conference - that all of us need, to think differently.

For too long we’ve had a dysfunctional housing market, with too few homes for a growing population. And, let’s be clear, finance has been part of the problem.

But with reforms now in place to help both the supply of homes, and to ensure that appropriate finance is available to those who are credit worthy, we need to work together, to help us return the market to a sustainable, healthy state.

As a government we are committed to these reforms and to working closely with builders and with lenders, so that we can ensure that many, many more people can finally get the home that they and their family need.